Frank owns a caravan and loves to visit national parks with his family. However, the family only takes two one-week trips in the caravan each year. Frank’s wife would rather stay in motels than the caravan. She presented him with the following itemisation of the cost per trip, hoping that he will sell the caravan and use motels instead.

Cost per trip
Caravan:
Cost: ..................................................................................................  $20 000
Usable for 10 seasons, two camping trips per season .................. $1000
Transportation expense:
1000 km @ $0.37 per km ....................................................................... 370
Includes:
$0.15 per km for petrol, oil, tyres and maintenance
$0.22 per km for depreciation and insurance
Groceries ................................................................................................. 250
Beverages ................................................................................................ 100
Cost per trip ........................................................................................ $1720
Cost per person ($1720/5 family members) .................................... $ 344

Required
(a) What are the relevant costs for deciding whether the family should go on one more camping trip this year?

(b) What are the relevant costs for deciding whether Frank should sell the caravan? Assume the family will take the same vacations but stay in motels if the caravan is sold.

(c) What factors other than costs might influence the decision to sell the caravan? List as many as you can.

(d) Consider your own preferences for this problem. Do you expect Frank’s preferences to be the same as yours? How can you control for your biases and consider this problem from Frank’s point of view?

(e) Frank asks you to help him decide what to do. Do you think he should sell the caravan? Why?